The US just introduced a tax proposal, and in that proposal they're sneaking in KYC for DeFi.

Here is the link to the proposed regulations:

public-inspection.federalregister.gov/2023-17565.pdf

They are trying to deem DeFi applications like Uniswap, 1inch, Curve, MetaMask etc. to be brokers & therefore, they'll need to implement KYC.

From page 38-39 (I'm paraphrasing a bit for easier reading experience):

"A facilitative service is defined as any service that directly or indirectly facilitates a sale of digital assets, such as providing: a party in the sale with access to an automatically executing contract or protocol; access to digital asset trading platforms; order matching services; market making functions to offer buy and sell prices; or escrow or escrow-like services to ensure both parties to an exchange act in accordance with their obligations."

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Anything that is defined as a "Facilitative service" is obligated to do KYC.

These are excluded from the definition of "Facilitative service":

• Persons solely engaged in providing distributed ledger validation services—through proof-of-work or proof-of-stake
• Persons solely engaged in the business of selling hardware or licensing software

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The very concerning part on page 39 (again paraphrasing a bit for easier reading):

"Wallet software providers are not excluded from the definition of facilitative service if the software also provides users with direct access to trading platforms from the wallet platform. The Treasury Department and the IRS invite comments regarding whether the provision of connection software by wallet providers to trading platforms (that customers of the trading platforms can then use to access their wallets from the trading platform) should be considered a facilitative service resulting in the wallet provider being treated as a broker and what additional functions wallet providers might provide that would be considered facilitative services."

Essentially wallets with in-built swaps & DeFi swap platforms are not excluded from the definition of "Facilitative services"

What they're trying to say is:

• Metamask & other wallets that have in-built swap functions are brokers and have to KYC and report all users, unless they remove swaps.
• Uniswap & other defi swap platforms are brokers and required to KYC.
• Anything with a multisig (since more than 1 party involved) is a broker and is required to add KYC.

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If this goes through it's the end of DeFi as we know it (In America). Another big concern is, if this goes through in US, other countries might follow suit.